Warren Buffet

(Kathryn Leivers, Sep 2008)

Imagine if you were the richest person in the world. What would you do? Buy palaces, yachts, a football club, an army of servants or give most of it away?

This is what Warren Buffet, the world’s richest man is currently doing. The publicity shy man Warren Buffet has been a mystery for a long time. He has just topped the Forbes rich list, knocking his friend, Bill Gates off the top spot after 13 years as the richest man in the world. His fortune is estimated to be $62 billion dollars. The Mexican Carlos Slim Helú has $60 billion and Bill Gates is now third with a mere $58 billion. To put this in perspective, Buffets personal wealth is greater than the entire wealth of many countries, for example the GNP of Vietnam is 51 billion and the GNP of Kuwait is 59 billion.

He made his money by investing on the stock market. He took over the textile firm Berkshire Hathaway 1965. His company gradually acquired more stock in different companies, including a 7% share in Coca-Cola. Had you put $10,000 into Berkshire when Buffett bought control of it in 1965, you'd have $51 million now. His basic investment principle has always been to invest in companies whose real value is greater than their stock market value, and this strategy has certainly paid off. Despite his huge fortune, he is known to be a man of modest tastes; he still lives in the same house which he bought in 1958 for $31,500, now estimated to be worth $700, 000. He pays himself an annual salary of $100 000, much less than most company chief executives.

His philosophy on wealth is interesting and I offer it up to the school today to see what you think of it. You might agree with all of it, some of it, or none of it, but his actions and ideas are certainly thought-provoking.

His children will not inherit a significant proportion of his wealth. These actions are consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next. Buffett once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing."

He said that dynastic wealth and giving children large inheritances is like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics". In 2007, Buffett testified before the Senate and urged them to keep the inheritance tax so as to avoid a plutocracy.

Warren Buffet is well regarded as a very clever and skillful businessman, and his ability to understand the trends in the economy have made him a very rich man. However, Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents.

The following quotation from 1988 highlights Warren Buffett's thoughts on his wealth and why he long planned to reallocate it:

"I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And still the wealth of the nation, the GNP would go up. But the utility of the product would be zero, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die." (Lowe 1997:165–166)

His wife died 2 years ago, and then he started to give his money away. He donated the majority of the shares in his company to charity in 2006, mostly to the Bill & Melinda Gates Foundation. This gift was valued at $31 billion on day of announcement; making it the largest single charity donation in history, but the donation will far exceed that sum so long as the company shares continue to rise.

But doesn’t it seem crazy that the first richest man in the world should be giving away his fortune to the third richest man in the world? Well, maybe, but Buffet sees it as giving his money ‘through’ Bill Gates’. He believes that Bill and Melinda Gates have the intelligence, the youth and the business expertise to make a real difference with his money. He says “Who wouldn’t select Tiger Woods to take his place in a high stakes game of golf? That’s how I feel about the decision to donate my money.”

The stakes are indeed very high; Bill Gates aims to use the money in his foundation to eradicate the twenty leading diseases in the world during his lifetime, including HIV/AIDS. This June, Bill Gates stepped down from his operating responsibility at Microsoft to devote his time to his charitable foundation.

The main donor of the Bill and Melinda Gates foundation, Warren Buffet, is to be admired, not only for his incredible business skills, but also for sticking to his beliefs and principles throughout his life.

The Indian economist “Amartya Sen” wrote a book entitled development and freedom based upon the philosophy that development and greater wealth are not a good thing in themselves, but the main benefit is that having money allows people make choices in their lives that they otherwise would not be able to make.

Having wealth gives you the freedom to make choices, how far do you agree with the choices that Warren Buffet has made with his wealth?